Gold futures log big one-day climb

Prices close back above $400; metals mining shares rally

SAN FRANCISCO (CBS.MW) -- Gold futures staged their biggest one-day climb in a week Tuesday, as weakness in the U.S. dollar strengthened investment demand for the precious metal and sent prices higher for a second session.

On the New York Mercantile Exchange Monday, gold for April delivery climbed $5.50 to close at $404.80 an ounce after an earlier climb to $405.

The contract, which gained $1.30 in the previous session and lost nearly $13 an ounce last week, hasn't gained this much in a single session since Feb. 17, when it rose nearly $6 an ounce.

"Many gold bugs will not say that gold is pegged to the dollar right now, but the truth be told it is certainly connected," said Kevin Kerr, a senior trading director at KWEST Trading International. "It is a self-fulfilling prophecy -- as the dollar drops, investors jump on the bandwagon to add gold and the cycle perpetuates itself."

The U.S. currency moved lower against most rivals for a second day, unable to build on last week's substantial dollar rally. See Currencies Report. Foreign demand for gold, which is denominated in dollars, rises when the U.S. currency weakens because overseas traders need to pay less in local currency to make purchases.

All in all, "the momentum gold has attracted since 9/11 has been significant and, dollar weakness or not, it is setting up for the long-term fundamental move higher," said Kerr.

Mining indexes up 3%

In equities, metals mining shares closed broadly higher after spending most of the last two sessions trading at their lowest levels since the start of the month.

The real factors to focus on in the metals market are the activities of the gold miners themselves, like Barrick
ABX, -1.48%
and Newmont
NEM, -0.60%
said Kerr.

"These miners seem to feel that a solid demand throughout the world is growing for gold, therefore they are confident that the long-term price for gold is moving into a new level," he said, adding that he sees the current gold price level as a "congestion point" before a move to above $420.

"This area has been a good buying opportunity for us to purchase mines that are producing not just gold, but the nonferrous metals as well," he said.

Tracking the mining sector as a whole, the Philadelphia Gold and Silver Index
XAU, -0.39%
and the CBOE Gold Index
$GOX
each tacked on 3 percent to close at 99.46 and 85.23, respectively.

The Amex Gold Bugs Index
HUI, -0.19%
added 3.3 percent to end the session at 224.33.

Shares of Barrick Gold climbed 64 cents, or 3.2 percent, to close at $20.59. At a presentation to the investment community in New York, the company's Chief Executive Greg Wilkins said that the focus for 2004 is to build new mines, which in turn, would result in a 40 percent rise in total production for the 2004 to 2007 period, at an expected total cash cost of under $200 per ounce.

"Barrick seems to be one of the best positioned to reap the benefits of the see-saw gold market," said Kerr.

Shares of Newmont also climbed by $1.46, or 3.5 percent, to close at $43.77.

Metals futures broadly higher

Back on Nymex, metals futures closed broadly higher.

March copper ended at $1.326 per pound, up 1.25 cents, while the March silver contract tacked on 13.2 cents to close at $6.622 an ounce.

"Buying interest overnight has kept the market supported and the bullish moves in copper recently will help underpin the market," said James Moore, an analyst at TheBullionDesk.com, in a note to clients.

Support for silver should be found all the way down to $6.30 with "scaled-up selling" capping the metal around $6.65 for now, he said.

April platinum rose by $16.10 to close at $856.10 an ounce, and sister metal March palladium ended the session at $234.40 an ounce, up $5.30.

On the supply end, copper supplies were down 1,571 short tons at 246,528 short tons as of late Monday, according to Nymex. Silver stocks were down 6,862 troy ounces at 123.9 million troy ounces.

Gold inventories stood at 3.48 million troy ounces, unchanged from the previous session.

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.